Energy efficiency faces storm of ideas, funding remains taboo
The proposed Energy Efficiency Directive, the focus of the upcoming Danish EU presidency, is lacking key details in its current form, one of which is funding.
Several energy savings options for both the supply and demand sides are being put on the table, triggering heated debate among various energy companies, power generation firms and international energy efficiency campaigners.
But targets and measures are not binding, they include many opt-outs and the question of who will pay for the much lobbied changes remains a taboo up to this stage.
The directive is to enter consultation talks within the European Parliament in the first months of 2012 and discussions are expected to be less tight than initially foreseen, with the largest political group, the European People’s Party (EPP), coming closer to a common view with the rest of the groups, such as S&D, ALDE and Greens that support the directive.
Denmark takes over the rotating EU presidency on 1 January.
National action plans fail to deliver
One of the key challenges the proposed directive faces is getting the right mix between action at EU level – which would establish a common framework, create funding possibilities and promote the EU as a forerunner in energy savings – and member states measures, which can differ substantially.
Member states have already adopted a number of policies under their national energy efficiency action plans, but these have been submitted with delays and have not been comprehensive enough to close the gap, showing rather “piecemeal thinking", the Commission’s impact assessment said. EU officials acknowledge that most countries are failing to meet minimum energy-saving targets.
The main binding measures proposed in the directive are the annual 3% renovation of public buildings and 1.5% savings for energy companies. However, the term “renovation” is not specific enough and it excludes those public buildings with a total floor area of less than 250 square meters. Some EU officials believe the 3% target is not enough as it is and it will not reduce consumers’ bills unless it also includes private buildings.
The 1.5% energy savings obligation set as an absolute national annual target for energy companies - Article 6 of the directive - is one of the measures the Commission tried to push for the most. Despite pressure from some countries to delete it, the 1.5% target is likely to stay in the directive.
The obligation scheme does not concern member states directly, so it could be rapidly agreed on in the Council, experts say.
“Investment is needed, but member states don’t need to invest themselves,” said Brooke Riley of Friends of Earth Europe. Companies could make money from selling energy efficiency services. Examples include insulating houses or selling high-speed Internet, like it is the case in Denmark.
“You could make more money selling energy than saving energy, if you replaced the fossil fuel with renewables,” Riley said.
Flexibility to decide savings mix
The annual saving target, although it is directed towards energy companies, does rule out an increase in energy sales. “It would simply slow them down, since the 1.5% refers to an amount of megawatts to be delivered, rather than a rate of decline of consumption,” Riley and Erica Hope, of Climate Action Network Europe, say in a position paper.
“Also, the 1.5% target currently covers buildings, businesses and large industry (roughly 800 / 1800 Mtoe), so countries can choose where to meet the 1.5% target and could - and may very well - focus on buildings if this seems the best option,” they added.
The directive's Article 6 should include a clause allowing distributors to count the energy they save internally to the absolute of 1.5%, said Giles Dickson, vice president for government relations in Europe for French transport and engineering company Alstom.
Leaving companies the freedom to decide their own mix of savings gives them greater flexibility, but Article 6 still includes an opt-out (Article 6.9). “If you allow more flexibility, there should not be an opt-out,” said Markus Becker of GE Energy.
Becker also thinks that Article 6 should make both the supply sector and the end-line consumers commit. He refers to power plants, which are the ones “mainly targeted”, and says that power plants and consumers could both see a profit through an enhanced use of conversion technologies.
These technologies would make plants more efficient and would enable them to use excess heating, for example, instead of fossil fuels, by putting it back into the grids. If conversion technologies were cheaper, consumption would increase, which will, after a period of time, lead to overall profits.
The directive should consider introducing incentives to make conversion technologies more efficient and reduce Europe’s dependence on oil imports, Becker said. The price of imported oil is expected to rise in the near-term to $150 per barrel if no measures are taken to save energy, said Fatih Birol, chief economist of the International Energy Agency.
Who pays for savings
“We talk about options, opt-outs, more ambitious, binding measures or targets. But when we raise the issue of who is paying for it, we break for lunch and continue later,” an EU expert told EurActiv.
In many cases, the average efficiency of generation capacity is considerably lower than best available technologies.
“Policy can easily deal with the financing idea,” said Michael Brown, director of Delta Energy and Environment, a consulting company which also conducts market analysis and which provides important projections that could be used for further amendments to the proposed efficiency directive.
The only way to fund efficiency improvements in power plants through specialised technologies is by creating new ‘credit mechanisms’, Becker said. One option could be the feed-in-tariffs system which is already used for renewables and another would entail emissions trading scheme allowances directed towards investments and not day-by-day costs.
Europe aims to reduce its primary energy use by 20% in 2020 “simply by applying cost-effective energy savings measures”.
The current Energy Efficiency Directive was proposed by the Commission last summer to update the previous Energy Efficiency Action Plan, which had not been designed to fashion full energy savings. The 20% will not be reached, unless the EU doubles its energy savings efforts from the current projection of 9%.
In its directive, European Commission proposes individual measures for each of the sectors that could play a role in reducing energy consumption.
The Commission will assess the energy efficiency levels of existing and new installations undertaking the combustion of fuels with a total rated thermal input of 50 MW or more in the light of the relevant best available techniques. Where it identifies significant discrepancies, the Commission will propose requirements to improve the energy efficiency levels. Experts say that the Commission should also create a common framework, such as the feed-in-tariff system used for renewables, in order to provide incentives for long-term investments.
“We don’t want to impose new costs to our existing customers,” said Giles Dickson of Alstom. “It would be helpful to have some kind of basis of framework to drive efficiency improvements, backed by policy, where these improvements make sense. Technologies cost more than it is economically viable.”
In the proposed directive, the Commission asks member states to use co-generation, as opposed to heat-only generation when developing district heating and cooling. “The CHP could displace separate generation,” Michael Brown of Delta Energy & Environment said, adding that this is a top way of reducing primary energy consumption.
The Energy Efficiency Directive also asks member states shall ensure that all new thermal electricity generation installations with a total thermal input exceeding 20 MW are provided with equipment allowing for the recovery of waste heat by means of a high-efficiency cogeneration unit and they are sited in a location where waste heat can be used by heat demand points. There is the possibility for an opt-out here, as long as “a cost-benefit analysis which shows that the costs outweigh the benefits in comparison with the full life-cycle costs”.
“There is a missing element here”, said Markus Becker of GE Energy said. The cost-benefit analysis should be made following the same assumptions and criteria. “If member states don’t take this seriously, it could distort the market.”
- Mid-Dec. 2011: New draft energy efficiency text to be discussed in a Council working group.
- 1 Jan. 2012: Denmark takes over presidency of the EU.
- Jan.-Feb. 2012: First discussions on the directive between member states.